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Cost-Benefit Analysis?
Weighing the costs and benefits of an action in order to maximize the net benefit from the action.
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Utility
Satisfaction realized from the consumption of a good or service or taking an action.
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Oppurtunity cost
The cost of acquiring a good or service or taking an action measured in terms of the value of the oppurtunity or alternative forgone.
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Marginal Benefit
Teh change in total satisfaction from consuming an additional unit of a good, service, or activity.
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Total Benefit (Total Utility)
The total amount of satisfaction recieved from consumiong a specified number of units of a good, service, or activity.
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Law of dimishining marginal utility
As additional units of an item are consumed, beyond some point each successive unit of the item consumed will add less to total utility than was added by the unit consumed just before it.
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Total Cost
The cost of producing a specified number of units of a good, service, or activity.
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Marginal Cost
The change in total cost from each additional unit of a good, service, or activity produced.
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Net Benefit
The resultg when total cost is subtracted from total benefit.
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Net Benefit maximizing rules
Net benefit is maximized where total benfit exceeds total cost by the greatest amount or where marginal benfit equals marginal cost.
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Explicit Costs
Payments that a business makes to aquire factos of production, such as labor, raw materials, and machinery.
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Implicit costs
The oppurtunity costs to business owners from using their resourses in the business rather than in an alternative oppurtunity; must be recovered to keep the busisness in operation; normal profit.
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Normal Profit
Profit necessary to recover implicit costs and keep a business in operation; considered to be an economic cost of production.
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Economic Cost of Production
Includeds all explicit and implict costs of producing a good or service.
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Excess Profit
Profit beyond normal profit: not considered a cost of production.
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Total Revenue
Revenue recieved from selling a certain quantity of an item: calculated by multiplying the price of an item by the quantity demanted at the price.
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Marginal Revenue
The change in toatal revenue when one more unit an item is demanded
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Profit or loss
The result when a business subtracts its toatal cost from its total revenue.
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Profit Maximizing rules
Profit is maximized at the output level where total revenue exceeds total cost by the greateds amount, or where marginal revenue equals marginal cost.
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